Why Investors Shouldn't Be Surprised By Indiva Limited's (CVE:NDVA) 70% Share Price Surge
Indiva Limited (CVE:NDVA) shares have continued their recent momentum with a 70% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.
In spite of the firm bounce in price, there still wouldn't be many who think Indiva's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Canada's Pharmaceuticals industry is similar at about 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for Indiva
What Does Indiva's P/S Mean For Shareholders?
With revenue growth that's inferior to most other companies of late, Indiva has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.
Keen to find out how analysts think Indiva's future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The P/S Ratio?
There's an inherent assumption that a company should be matching the industry for P/S ratios like Indiva's to be considered reasonable.
Retrospectively, the last year delivered a decent 4.5% gain to the company's revenues. While this performance is only fair, the company was still able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next year should generate growth of 6.5% as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 5.0%, which is not materially different.
With this in mind, it makes sense that Indiva's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.
What Does Indiva's P/S Mean For Investors?
Its shares have lifted substantially and now Indiva's P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Our look at Indiva's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.
You should always think about risks. Case in point, we've spotted 4 warning signs for Indiva you should be aware of, and 2 of them are concerning.
If these risks are making you reconsider your opinion on Indiva, explore our interactive list of high quality stocks to get an idea of what else is out there.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
